A Message from the Audit and Finance Committee

The Audit and Finance Committee assists the full Board of Governors in fulfilling its fiduciary responsibilities. The Chairman of the Board selects the members of the Audit and Finance Committee for each calendar year. This year the committee, whose members are Governor Louis J. Giuliano, Governor Carolyn Lewis Gallagher, Governor Thurgood Marshall, Jr, and I, met seven times in conjunction with the regularly scheduled monthly Board meetings.

The certified public accounting firm responsible for the independent audit of the Postal Service financial statements, Ernst & Young, LLP, reports to the Board through the Audit and Finance Committee. The Postal Service Inspector General also reports to the Governors and is represented at all Committee meetings.

The Audit and Finance Committee’s primary responsibility is oversight of the integrity of the Postal Service financial statements. The Committee monitors the Postal Service financial reporting process, the soundness of internal control procedures, cash management, and overall financial performance of the Postal Service to ensure the integrity of its financial statements.

The passage of the Postal Enhancement and Accountability Act of 2006 had, and will continue to have, a significant impact on the work of the Committee. Three new requirements in particular will impact its work: the rulemaking process governing the regulatory accounting for the newly-created competitive and market-dominant product categories; the mandate for fully SEC-compliant financial reporting, beginning in 2008; and compliance with section 404 of the Sarbanes-Oxley Act of 2002, beginning in 2010.

Each of these items is significant in its own right. Beginning shortly after the passage of the Act, the Committee began monitoring closely management’s plans and efforts toward compliance with Section 404 of Sarbanes-Oxley. Likewise, we monitored developments in the rulemaking process governing the accounting for competitive and market-dominant products. These efforts will be ongoing until both processes are successfully implemented.

The Postal Service will begin filing with the Postal Regulatory Commission financial reports that are fully compliant with SEC requirements beginning in 2008, and the Committee will supervise those processes as well. Although the Postal Service has been issuing financial reports in formats similar to SEC forms 10-K and 10-Q for a number of years, this was done on a strictly voluntary basis, in the spirit of full disclosure and transparency.

During the year, the Committee also reviewed its charter, the attribution of cost and estimation of revenues by class of mail, the preparation of the Postal Service’s Integrated Financial Plan for 2008, and the Office of Inspector General’s Audit Plan for 2008.

In directing the conduct of the 2007 financial statement audit, the Committee met with Ernst & Young LLP and reviewed their work plan for the financial statement audit. We concurred with the scope and materiality levels established. We met jointly and independently with Ernst & Young LLP, the Inspector General, management and the Postal Service General Counsel to discuss progress on the audit. We determined that the work of the Office of Inspector General and our external auditor was independent and objective.

Accordingly, the Committee recommended, and the Board approved, the financial statements for 2007.

Katherine C. Tobin
Chairman, Audit and Finance Committee
November 15, 2007